Goods v Services

Written by Steve Sidkin
21 April 04

The term “goods” forms a key part in the definition of a commercial agent under The Commercial Agents Regulations. Unfortunately the Regulations fail to define by what is meant by “goods”.

In 1994 the Department of Trade and Industry issued guidance notes to the Regulations. These notes provided that “goods” had to be interpreted in accordance with the EC Treaty, and it was for that reason that the Regulations did not define the word. Unfortunately “goods” is not defined by the EC Treaty. Nevertheless the DTI put forward the view that the definition of “goods” contained in the Sale of Goods Act might offer a reasonable guide without necessarily having that same meaning as that contained in the European Self-employed Agents Directive. Accordingly it could be assumed that the statutory definition (as meaning that goods includes all personal chattels and money) offers a reasonable guide as to what constitutes goods. Whether this will prove satisfactory is, however, open to doubt as a result of a number of cases which have been referred to the European Court.

The case of Pace in 1998 was concerned with cargo space on the planes of Ukraine International Airlines. In this case it was pointed out the Regulations did not define “goods” and that in respect of the Directive and the Regulations, the term might be wide enough to include the sale of cargo space. Accordingly a question on this point was referred to the European Court of Justice.

Pace was settled before the European Court could give judgment. As a result the question of what are goods remained unanswered. However, because of two simultaneous decisions of different Chambers of the European Court in 2003 we have an answer of sorts.

In Caprini v CCIAA the Civil and Criminal Court of Trento referred to the European Court a question on the Directive. The issue before the Italian court concerned the right of Mrs Caprini to be included in her local register of undertakings as a commercial agent when she was not at that time registered in the Italian register of commercial agents and representatives.

The European Court decided that national legislation could require registration in a register of commercial agents to be a precursor to registration in a register of undertakings. However, this was conditional on non-registration in the register of undertakings not affecting the validity of the agency contract. It was also conditional on such non-registration not adversely affecting the protection given by the Directive to commercial agents. But, most importantly, the fact that Mrs Caprini was a commercial agent for the sale of advertising space was simply not an issue for the European Court.

In contrast the decision in Abbey Life Assurance v Yeap could not have been more different. In November 2001 the English Court of Appeal referred a question to the European Court as to whether policies for life assurance, annuities, health and pension business, unit trusts, offshore funds business, personal equity plans and other contracts offered by Abbey Life (“Financial Products”) were goods within the provisions of the Regulations and the Directive. A further question was asked as to whether contracts for such Financial Products had to be marketable and/or assignable before they could be described as “goods” for the purpose of the Regulations and the Directive.

The background to the case was that in 1988 Mr Yeap had become an agent for Abbey Life to sell its Financial Products. In 1997 Abbey Life terminated his agency and sought to recover a deficit of a £9,377.68 on his commission account. Mr Yeap defended and counterclaimed by invoking the Regulations. His defence and counterclaim failed before the Central London County Court which held that the Financial Products were not goods. Mr Yeap appealed to the Court of Appeal. In due course it referred two questions to the European Court.

Submissions to the European Court were made by Abbey Life, the UK government and the European Commission. Mr Yeap did not make a submission. The UK Government drew attention to the travaux préparatories for the Directive. It pointed out that the first Commission proposal for the Directive had covered all “commercial transactions”, that is goods and services. In addition the first Commission proposal had excluded intermediaries who carried on their activities in the insurance or credit fields.

The European Court pointed out that when the Directive had been made by the European Council all references to services had been deleted. Furthermore the exemption of the above intermediaries had been removed as it had become otiose. It also pointed to the Commission’s proposed directive to replace Directive 77/92/EEC (the “Insurance Agents Directive”). The Commission expressed the view that the raison d’être of the Insurance Agents Directive would be doubtful if “that class of persons was already covered by the directive on commercial agents”.

It also accepted the UK submission in respect of the process of production not being equivalent to the provision of “services” within the meaning of the Treaty since it results directly in the manufacture of a material object (as decided by the European Court in Cinéthèque v Federation Nationale des Cinémas Français.) Similarly the European Court had decided in Schindler that the fact that an activity may have some physical manifestation, does not mean it entails the supply of goods rather than, or as well as, services.

The European Court further pointed to the UK submission that the whole of Community legislation adopted in the fields of insurance and financial services is based upon the applicability of the Community rules of freedom to provide services or capital and not upon the applicability of the rules on free movement of goods.

As such the European Court had no difficulty finding that an agent involved in the sale of Financial Products did not come within the Directive (and, therefore, the Regulations.)

However, it should be remembered that the Directive states that it is concerned with protecting commercial agents. In contrast neither the Insurance Agents Directive nor its replacement proposed by the Commission are concerned with protecting commercial or any other type of agent. Instead their objective is to regulate those involved in the sale of Financial Products. To put it another way, agents are not “already covered”.

Whilst the decisions of the European Court in Cinéthèque and Schindler are harder to call into question, it is the case that the laws of some Member States which implement the Directive do not distinguish between “goods” and “services”. For example, German law. Further this was most amply demonstrated by the European Court’s own decision in Caprini.

Overall the decision of the European Court is Abbey Life smacks of expediency. To allow agents selling Financial Products to be covered by the Directive would be a burden that Europe’s financial services industry could do without.

A further issue arises in respect of the situation where an agent is concerned to obtain orders for goods and services. One example is shown in respect of computer services where an agent may obtain orders for consumables and for the servicing of the PCs which use them. Whether such an agent will be a commercial agent for the purpose of the Regulations has still to be decided by the courts. The answer is not easy. It has been suggested that the issue could be decided by dividing up the commission earned by the agent in respect of goods and services. This would result in the agent being protected under the Regulations in respect of that part of his activities related to the orders obtained for the consumables (but not the servicing). On balance, this is unlikely to prove satisfactory. Instead we can expect that whether an agent will be treated as a commercial agent for the purpose of the Regulations will be determined on the basis of whether or not his activities in obtaining orders for goods (as opposed to services) are secondary.

However, until that time, the issue remains open.

This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any member of the Fox Williams’ agentlaw team (www.agentlaw.co.uk).